Oil firms seek policy to buy overseas assets - Quoted in the Financial Chronicle
Indian companies have lost around $12.5b worth of energy contracts to Chinese firms
As the cry for energy security reaches a feverish pitch, companies across sectors are seeking urgent formulation of a national strategy for acquiring energy assets overseas.
This, they say, calls for changes in policies at the levels of the government, public sector and private companies so that acquisition of developed energy assets and exploratory blocks becomes a sovereign strategy.
They also believe that the government should meet bulk of the funding requirements and also bear the losses in initial phases in this high risk-high return game. Besides, there is a general consensus that companies should work as cohorts instead of going it alone.
In the past 18 months, Indian companies have lost around $12.5 billion worth of energy contracts to the Chinese firms. ONGC Videsh, the international arm ONGC, after taking over the UK energy major Imperial Energy in 2008, has not won any major oil and gas block abroad. It lost to China in Algeria’s Hassi bir Rekaiz oilfield and twice in Iraq at Halfaya and Zubair oil fields, besides losing in Uganda to China National Offshore Oil Corporation.
India’s progress towards energy security has also been hampered by other factors. The production from the biggest gas-producing field in India, the Krishna Godavari Basin (KG-D6 field) of RIL tanked due to technical snag in the reservoir. There has been no progress on the three important gas pipelines proposed from Iran, Turkmenistan and Burma due to geo-political and cost-related issues.
India’s present demand for oil is around 163 million tonnes a year and it is expected to go up to 200 million tonnes by 2016, while gas demand is expected to rise to 490 million standard cubic metres (mmscmd) from 193 mmscmd.
ONGC chairman Sudhir Vasudeva told Financial Chronicle, “We are producing around 9.5 million tonnes from our 33 oil and gas blocks abroad — that is around 18.5 per cent of the country’s total production. However, we will need to enhance this through expansions and acquisitions abroad as our mother nature is not that well endowed with petroleum resources.”
Vasudeva feels that there is an urgent need to have a national strategy. “This should cater to our energy security where government participation should be to provide a sovereign fund that companies could bank on while going abroad.”
However, the issue has been put on back burner with government asking public sector undertakings (PSUs) to put their surplus cash in a sovereign fund. “We might spend the money directly rather than creating a fund from our own money that serves no purpose”, Vasudeva said.
Besides, diplomacy and government-to-government ties could play a key role in helping Indian companies acquire energy assets abroad. ONGC, for instance, is pursuing its interest in Sakhalin-3, Trebs and Titov projects and also in Yamal Peninsula gas project in Russia. “We have gone with the prime minister as part of various delegations, however nothing much has happened on Sakhalin 3. We are also looking out for other oil and gas blocks in association with Oil India,” Vasudeva said.
Sakhalin-3 project is estimated to have reserves of 1.4 trillion cubic metres of gas. Licences for Kirinsky block of Sakhalin-3 Project were granted to Russian company Gazprom in 2009, which is not interested to have foreign partners at the moment as it says that the area constrains strategic hydrocarbon resources. ONGC’s bid for Trebs and Titov projects in Timan Pechora Region was rejected, but it still remains interested in participating in this project. India is also interested in sourcing LNG from Russia.
Reliance Industries (RIL), BPCL and Essar officials, on conditions of anonymity, said, the immediate concern is to tie up resources and acquire equity in developed prospects abroad. Any exploratory block takes around eight-nine years to reach the production stage, which will not be able to take care of the immediate requirements over the next four-five years. There is also an immediate need to build strategic storage capacity in India similar to that of the United States.
An RIL official said, “At present, India has no national policy on acquisition of assets or even on bringing in investments from abroad to develop our fields in India on the east or the west coast, where existing production is fast depleting.” He pointed out that there is no clear-cut policy on storage.
“In the US when they dig into their reserves, it creates ripples in the oil market. So huge is their reserves that it can take care of two to three months of their requirements,” said this official.
RIL has 13 blocks in its international portfolio, including 2 in Peru, 3 in Yemen (1 producing and 2 exploratory), 2 each in Oman, Kurdistan and Colombia, 1 each in East Timor and Australia amounting to a total acreage of over 99,145 sq km. RIL has also invested around $5 billion in three shale gas assets in the United States.
Besides ONGC and RIL, Oil India, BPCL, Essar also have substantial exploration and production assets abroad. BPCL has 17 oil and gas assets abroad — 10 in Brazil, 3 in Australia, and one each in UK, Mozambique, Indonesia and East Timor. BPCL plans to spend around Rs 10,000 crore towards the development of these projects over the next five years.
A BPCL official said: “India can leverage its talent and entrepreneurial capabilities to corner assets abroad.” He suggested that India’s geographical proximity to Africa and West Asia should be leveraged to bring gas and oil to India. That will be much easier with infrastructure being build on the west coast.
Essar group too has five exploration and production blocks abroad — one in Nigeria, where production has started, and four exploration blocks, one each in Vietnam and Indonesia and two in Madagascar.
BN Talukdar, director, E&P and business development, Oil India, said in Mumbai recently that the company will be looking for developed energy assets abroad to take care of its immediate requirements.
The company recently in a consortium with ONGC Videsh and Indian Oil acquired 45 per cent interest in a Venezuela oil field. Oil India at present is looking for six more deals and wants to acquire stake in natural gas assets in Russia along with ONGC Videsh. The company has plans to invest around Rs 4,000-4,500 crore on gas assets.
According to Shubhranshu Patnaik and Dipesh Dipu, senior directors, at Deloitte India, the demand for energy constitutes not just oil and gas but also coal. India imports around 70 to 90 million tonnes per annum (mtpa) of coal at present and is expected to double to 200 million tonnes in next five years.
The demand for coal is expected to rise to 2.32 billion tonnes per annum by 2032, which is based on government expectation of macro-economic growth. Even at the present levels of demand, the shortfall has crossed 100 million tonnes per annum and it is expected that shortfall will exceed 450 million tonnes in 2017.
Indian companies have been acquiring coal assets abroad. Assuming that the entire coal acquired abroad by Indian companies finds its way to India, it has the potential to bridge the gap to an extent. But, economic viability of power generation from thermal coal brought from far off places such as Australia will remain a key concern.
“The electricity tariffs need to be cost reflective and the risks of international coal mine acquisitions, development and operations need to be adequately compensated for the assets to be Indian demand-oriented,” Dipu said.
Also despite the acquisitions, the predicament is that none of the state entities have bought a single coal asset abroad especially when India could become the largest importer of coal in next five years beating China and Japan.
“Its a scary thought that India will be setting the price for coal globally without having any global assets. Public sector players should adopt a strategy immediately, especially for thermal grade coal. Besides, they can work as associates with private players as well in their search for resources,” Patnaik said.
Major private players like Tata group, JSW, Essar and Adani have bought coal assets in Indonesia, Mozambique, South Africa, Australia and US.
But, none of the public sector companies have any coal assets abroad, except few coking coal assets bought by Steel Authority of India (SAIL), but not thermal coal, the requirement for which has become more pronounced in the light of higher import price from Indonesia and Australia as they benchmarked their coal to international indexes and imposed carbon tax on emissions.
Adani Enterprises owns coal-mining rights in Indonesia at Bunyu Island with potential coal reserves of around 140 million tonnes. Besides it has assets in Australia at Carmichael Coal Mine in Galilee Coal Tenement with 7.8 billion tonne resources. This is the largest ever investment by any Indian company in Australia.
“The key to mitigate risks like benchmarking of Indonesian coal to international prices and mineral taxes in Australia is to focus on domestically available resources, which are plentiful, and provide enabling regulatory and statutory framework for coal mine development in India,” Dipu said.
As the cry for energy security reaches a feverish pitch, companies across sectors are seeking urgent formulation of a national strategy for acquiring energy assets overseas.
This, they say, calls for changes in policies at the levels of the government, public sector and private companies so that acquisition of developed energy assets and exploratory blocks becomes a sovereign strategy.
They also believe that the government should meet bulk of the funding requirements and also bear the losses in initial phases in this high risk-high return game. Besides, there is a general consensus that companies should work as cohorts instead of going it alone.
In the past 18 months, Indian companies have lost around $12.5 billion worth of energy contracts to the Chinese firms. ONGC Videsh, the international arm ONGC, after taking over the UK energy major Imperial Energy in 2008, has not won any major oil and gas block abroad. It lost to China in Algeria’s Hassi bir Rekaiz oilfield and twice in Iraq at Halfaya and Zubair oil fields, besides losing in Uganda to China National Offshore Oil Corporation.
India’s progress towards energy security has also been hampered by other factors. The production from the biggest gas-producing field in India, the Krishna Godavari Basin (KG-D6 field) of RIL tanked due to technical snag in the reservoir. There has been no progress on the three important gas pipelines proposed from Iran, Turkmenistan and Burma due to geo-political and cost-related issues.
India’s present demand for oil is around 163 million tonnes a year and it is expected to go up to 200 million tonnes by 2016, while gas demand is expected to rise to 490 million standard cubic metres (mmscmd) from 193 mmscmd.
ONGC chairman Sudhir Vasudeva told Financial Chronicle, “We are producing around 9.5 million tonnes from our 33 oil and gas blocks abroad — that is around 18.5 per cent of the country’s total production. However, we will need to enhance this through expansions and acquisitions abroad as our mother nature is not that well endowed with petroleum resources.”
Vasudeva feels that there is an urgent need to have a national strategy. “This should cater to our energy security where government participation should be to provide a sovereign fund that companies could bank on while going abroad.”
However, the issue has been put on back burner with government asking public sector undertakings (PSUs) to put their surplus cash in a sovereign fund. “We might spend the money directly rather than creating a fund from our own money that serves no purpose”, Vasudeva said.
Besides, diplomacy and government-to-government ties could play a key role in helping Indian companies acquire energy assets abroad. ONGC, for instance, is pursuing its interest in Sakhalin-3, Trebs and Titov projects and also in Yamal Peninsula gas project in Russia. “We have gone with the prime minister as part of various delegations, however nothing much has happened on Sakhalin 3. We are also looking out for other oil and gas blocks in association with Oil India,” Vasudeva said.
Sakhalin-3 project is estimated to have reserves of 1.4 trillion cubic metres of gas. Licences for Kirinsky block of Sakhalin-3 Project were granted to Russian company Gazprom in 2009, which is not interested to have foreign partners at the moment as it says that the area constrains strategic hydrocarbon resources. ONGC’s bid for Trebs and Titov projects in Timan Pechora Region was rejected, but it still remains interested in participating in this project. India is also interested in sourcing LNG from Russia.
Reliance Industries (RIL), BPCL and Essar officials, on conditions of anonymity, said, the immediate concern is to tie up resources and acquire equity in developed prospects abroad. Any exploratory block takes around eight-nine years to reach the production stage, which will not be able to take care of the immediate requirements over the next four-five years. There is also an immediate need to build strategic storage capacity in India similar to that of the United States.
An RIL official said, “At present, India has no national policy on acquisition of assets or even on bringing in investments from abroad to develop our fields in India on the east or the west coast, where existing production is fast depleting.” He pointed out that there is no clear-cut policy on storage.
“In the US when they dig into their reserves, it creates ripples in the oil market. So huge is their reserves that it can take care of two to three months of their requirements,” said this official.
RIL has 13 blocks in its international portfolio, including 2 in Peru, 3 in Yemen (1 producing and 2 exploratory), 2 each in Oman, Kurdistan and Colombia, 1 each in East Timor and Australia amounting to a total acreage of over 99,145 sq km. RIL has also invested around $5 billion in three shale gas assets in the United States.
Besides ONGC and RIL, Oil India, BPCL, Essar also have substantial exploration and production assets abroad. BPCL has 17 oil and gas assets abroad — 10 in Brazil, 3 in Australia, and one each in UK, Mozambique, Indonesia and East Timor. BPCL plans to spend around Rs 10,000 crore towards the development of these projects over the next five years.
A BPCL official said: “India can leverage its talent and entrepreneurial capabilities to corner assets abroad.” He suggested that India’s geographical proximity to Africa and West Asia should be leveraged to bring gas and oil to India. That will be much easier with infrastructure being build on the west coast.
Essar group too has five exploration and production blocks abroad — one in Nigeria, where production has started, and four exploration blocks, one each in Vietnam and Indonesia and two in Madagascar.
BN Talukdar, director, E&P and business development, Oil India, said in Mumbai recently that the company will be looking for developed energy assets abroad to take care of its immediate requirements.
The company recently in a consortium with ONGC Videsh and Indian Oil acquired 45 per cent interest in a Venezuela oil field. Oil India at present is looking for six more deals and wants to acquire stake in natural gas assets in Russia along with ONGC Videsh. The company has plans to invest around Rs 4,000-4,500 crore on gas assets.
According to Shubhranshu Patnaik and Dipesh Dipu, senior directors, at Deloitte India, the demand for energy constitutes not just oil and gas but also coal. India imports around 70 to 90 million tonnes per annum (mtpa) of coal at present and is expected to double to 200 million tonnes in next five years.
The demand for coal is expected to rise to 2.32 billion tonnes per annum by 2032, which is based on government expectation of macro-economic growth. Even at the present levels of demand, the shortfall has crossed 100 million tonnes per annum and it is expected that shortfall will exceed 450 million tonnes in 2017.
Indian companies have been acquiring coal assets abroad. Assuming that the entire coal acquired abroad by Indian companies finds its way to India, it has the potential to bridge the gap to an extent. But, economic viability of power generation from thermal coal brought from far off places such as Australia will remain a key concern.
“The electricity tariffs need to be cost reflective and the risks of international coal mine acquisitions, development and operations need to be adequately compensated for the assets to be Indian demand-oriented,” Dipu said.
Also despite the acquisitions, the predicament is that none of the state entities have bought a single coal asset abroad especially when India could become the largest importer of coal in next five years beating China and Japan.
“Its a scary thought that India will be setting the price for coal globally without having any global assets. Public sector players should adopt a strategy immediately, especially for thermal grade coal. Besides, they can work as associates with private players as well in their search for resources,” Patnaik said.
Major private players like Tata group, JSW, Essar and Adani have bought coal assets in Indonesia, Mozambique, South Africa, Australia and US.
But, none of the public sector companies have any coal assets abroad, except few coking coal assets bought by Steel Authority of India (SAIL), but not thermal coal, the requirement for which has become more pronounced in the light of higher import price from Indonesia and Australia as they benchmarked their coal to international indexes and imposed carbon tax on emissions.
Adani Enterprises owns coal-mining rights in Indonesia at Bunyu Island with potential coal reserves of around 140 million tonnes. Besides it has assets in Australia at Carmichael Coal Mine in Galilee Coal Tenement with 7.8 billion tonne resources. This is the largest ever investment by any Indian company in Australia.
“The key to mitigate risks like benchmarking of Indonesian coal to international prices and mineral taxes in Australia is to focus on domestically available resources, which are plentiful, and provide enabling regulatory and statutory framework for coal mine development in India,” Dipu said.
posted by Dipesh Dipu @ 10:27 PM
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